Inflation and Unemployment in a Monetary Union

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Springer Science & Business Media, Jul 15, 2008 - Business & Economics - 243 pages
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This book studies the coexistence of inflation and unemployment in a monetary union. The focus is on how to reduce the associated loss. The primary target of the European central bank is low inflation in Europe. The primary target of the German government is low unemployment in Germany. And the primary target of the French government is low unemployment in France. The European central bank has a quadratic loss function. The same applies to the German government and the French government. The key questions are: To what extent can the sequential process of monetary and fiscal decisions reduce the loss caused by inflation and unemployment? Is monetary and fiscal cooperation superior to the sequential process of monetary and fiscal decisions? The present book is part of a larger research project on European Monetary Union, see the references given at the back of the book. Some parts of this project were presented at the World Congress of the International Economic Association, at the International Conference on Macroeconomic Analysis, at the International Institute of Public Finance, and at the International Atlantic Economic Conference. Other parts were presented at the Macro Study Group of the German Economic Association, at the Annual Meeting of the Austrian Economic Association, at the Göttingen Workshop on International Economics, at the Halle Workshop on Monetary Economics, at the Research Seminar on Macroeconomics in Freiburg, at the Research Seminar on Economics in Kassel, and at the Passau Workshop on International Economics.
 

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Contents

Monetary Policy in Europe
9
2 Some Numerical Examples
14
Fiscal Policies in Germany and France
19
2 A Numerical Example
22
Central Bank and Governments Decide Sequentially
25
2 Some Numerical Examples
28
Central Bank and Governments Cooperate
32
2 Some Numerical Examples
34
3 The Policy Model
118
4 Another Version of the Policy Model
120
5 Some Numerical Examples
121
Fiscal Policies in Germany and France
127
2 The Loss Functions of National Governments
129
3 The Policy Model
130
4 Another Version of the Policy Model
132
5 Some Numerical Examples
133

The Countries Differ in Size
37
The Countries Differ in Behaviour
41
The Monetary Union of Three Countries
45
The Rate of Unemployment
49
Monetary Policy in Europe
51
2 Some Numerical Examples
54
Fiscal Policies in Germany and France
59
2 A Numerical Example
62
Central Bank and Governments Decide Sequentially
65
2 Some Numerical Examples
68
Central Bank and Governments Cooperate
72
2 Some Numerical Examples
74
The Countries Differ in Size
77
The Countries Differ in Behaviour
81
The Monetary Union of Three Countries
85
Inflation and Unemployment The Monetary Union as a Whole
89
The Model
90
2 The Loss Function of the European Central Bank
92
3 Policy Model A
93
4 Policy Model B
94
5 Policy Model C
95
6 Policy Model D
96
Some Numerical Examples
98
2 Weight of Inflation in Loss Function is 075
104
3 Weight of Inflation in Loss Function is 1
106
Monetary Policy in the Phillips Curve Diagram
109
Inflation and Unemployment The Monetary Union of Two Countries
112
Monetary Policy in Europe
113
2 The Loss Function of the European Central Bank
117
Central Bank and Governments Decide Sequentially
137
2 Some Numerical Examples
141
Central Bank and Governments Cooperate
151
2 The Loss Function
152
3 The Policy Model
153
4 Another Version of the Policy Model
155
5 Some Numerical Examples
157
Central Bank and Governments Differ in Loss Function
166
2 Some Numerical Examples
168
Some Basic Models
175
2 Fiscal Policies in Germany and France
180
3 Central Bank and Governments Decide Sequentially
183
4 Central Bank and Governments Cooperate
190
Conclusion
196
2 The Monetary Union of Two Countries
200
22 Fiscal Policies in Germany and France
203
23 Central Bank and Governments Decide Sequentially
204
24 Central Bank and Governments Cooperate
209
25 Central Bank and Governments Differ in Loss Function
213
Result
217
2 Fiscal Policies in Germany and France
218
3 Central Bank and Governments Decide Sequentially
219
4 Central Bank and Governments Cooperate
221
Symbols
223
The Current Research Project
225
References
229
Index
241
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